Wednesday, August 22, 2007

SoundExchange extends (not very good) offer to small webcasters

Yesterday, SoundExchange emailed a not very good offer to small webcasters. This offer is separate from an offer being negotiated with a group of 6 small webcasters who were parties to the CRB hearings known as the Small Commercial Webcasters group and represented by David Oxenford.

There has been some news coverage about webcasters' reactions to this.

As for my reaction to parts of parts of the offer:

These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month. For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.) By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.
It should be pointed out that this number is very low; to put that into context, we're capped at an AQH of under 7000; but for example WBUR, a public radio station in Boston has an AQH of over 40,000. Currently, SomaFM averages a little over this, typically around 7800 average listeners.

Now according to a discussion I had with John Simson, this only applies to listeners in the US. So that reduces our amount of listeners by 40%. But at the rate we're growing, in 2 years we'll be over that limit with our US listeners. So this agreement won't work for us.

If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms. After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
So if we exceed that revenue cap, our royalties would go from $150,000 a year to over $2 million or more a year. In fact, if we extrapolate our current revenue to royalty ratio, our rates would go from $150,000 to $5 million at the point we hit the $1.25 million revenue cap.

So if we can increase the size of our business to over 1.25 million dollars, we'll be forced out of business.

This isn't an offer. This is a restraint of trade.

Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange. For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
This is the real problem here, and why we need congress to act. SoundExchange only represents 20,000 artists, and many artists SomaFM plays are not SoundExchange members (we are playing about 8000 different artists currently). To put the 20,000 number in context: Live365 plays over 250,000 different artists.

Bottom line: this is an unworkable offer, and it is not in any webcaster's interest to accept this offer.

Here's the full text of the letter, or get a PDF of this letter and the actual SWSA Term Sheet 2006:

Dear Small Commercial Webcaster,
 
  I am writing on behalf of SoundExchange, Inc. (“SoundExchange”) and its member copyright owners to offer certain small commercial webcasters an alternative rate structure to that enacted by the Copyright Royalty Judges (CRJs) in the recent webcasting proceedings.  Through this offer, qualified webcasters have the option of utilizing the attached rates and terms for nonsubscription transmissions of SoundExchange member sound recordings under 17 U.S.C. § 112 and § 114. 
 
  At the request of members of Congress and congressional committees, SoundExchange is making the attached offer available to small commercial webcasters which do not exceed an annual revenue threshold or a monthly threshold on aggregate tuning hours.  The attached rates and terms generally track those previously available under the prior agreement negotiated pursuant to the Small Webcaster Settlement Act (SWSA), which allow qualified entities to pay royalties based on a percentage of revenue (10% or 12%) or a percentage of expenses (7%) as long as their total annual revenue (both direct and affiliated revenue) does not exceed $1.25 million.  However, there are certain additional terms:  
               
  • These rates and terms are available for eligible nonsubscription transmissions for 2006-10, thus effectively extending the rates and terms negotiated pursuant to SWSA for an additional 5 years.  
  •            
  •           These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month.  For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.)  By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.  
  •            
  •           If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms.  After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  
  •            
  •           Webcasters must provide census reporting to SoundExchange and be willing to work with SoundExchange on implementing technology, developed at SoundExchange’s expense, to track transmissions and provide the census reporting required under the agreement.            
            As with SWSA, a condition of this offer is that all parties affirm that this agreement is non-precedential and does not reflect an agreement between willing buyers and willing sellers in the marketplace.  Rather, this agreement reflects the desires of certain members of Congress that certain small commercial webcasters receive a below-market rate and as a compromise motivated by the unique business, economic and political circumstances of small webcasters, copyright owners, and performers.  All parties agree that this agreement (including any rate structure, fees, terms, conditions, or notice and recordkeeping requirements) may not be introduced in any proceeding, including those related to the setting of rates and terms for the licensing of sound recordings.  

              Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange.  For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  SoundExchange is working, however, to implement an industry-wide resolution that would apply rates and terms similar to the attached for all eligible small commercial webcasters and all sound recording copyright owners.  In the event that industry-wide regulations are adopted by the CRJs (or other appropriate authority) with rates and terms substantially similar to those contained in this agreement, this agreement will cease to operate and all parties will be governed by the industry-wide regulations.  Ultimately, an industry-wide resolution will be easier for all parties to administer, so it is our hope that such a resolution can be obtained.  

              If you are interested in accepting these rates and terms offered on behalf of SoundExchange’s members, please sign the attached election form and return the signed form to SoundExchange by September 14, 2007.  

              Should you have any questions about any of the information within, please contact Kyle Funn, Licensing & Enforcement Specialist, at 202.640.5881.  
  
  Respectfully,
  
    John L. Simson
   Executive Director
  SoundExchange, Inc.

 

Labels: , , , , , ,

12 Comments:

Anonymous Anonymous said...

And here's what it's all about, right here in this clause:

"willing to work with SoundExchange on implementing technology ... to track transmissions and provide the census reporting required under the agreement"

Re-read that.

Now imagine what it means if all webcasters, everywhere, have to install SoundExchange technology that tracks and reports /every single/ play back to SoundExchange.

I cannot imagine the gargantuan vortex of suck such an idea would be capable of creating.

August 23, 2007 5:58 AM  
Anonymous Anonymous said...

The thing that disturbs me most is that all these agreements have expiration dates, which means this entire legal/political circus repeats itself. You can be certain the recording industry will negotiate just as aggressively then as they do now.

The only real solution is to reform the entire licensing system and do away with the PROs. The PRO system might have made sense 50 years ago, but nowadays with the internet and ubiquitous computing, there's not a single reason why a more democratic approach cannot succeed.

Why must artists sign all their rights to a PRO just so they can receive fair compensation when a radio station plays their stuff? Why can't artists independently negotiate compensation with stations/radio programs directly? There's no reason the whole thing can't be automated, and there's no reason the PRO has to be in the middle.

PROs are a legacy of the bad old days. The world is changing, and the music industry framework must change to match the world, not the other way around.

August 23, 2007 2:15 PM  
Blogger Fred said...

There's two very good reasons for PROs and blanket licenses:

1.) Are you, as a musician, capable of monitoring all individual stations that might play your music without a license?

2.) And if you find one that hasn't got a license from you, how much time and effort can you afford to chase the dime in royalties you lost on that one play?

Blanket licenses through PROs avoid both these issues and get artists paid.

Yes, there are deficiencies in the current system, but given the scale and scope of the issue, you need a centralized licensing entity. With luck, you'll get one that does a better job than SoundExchange.

August 23, 2007 7:27 PM  
Anonymous Anonymous said...

Well, to #1 I'd say how does the PRO know? They only "sample" from a tiny subset of all stations and are the first to point out that their model is statistical not deterministic. PROs aren't doing this anyway.

As to #2, the point is that with the internet, there's no reason a radio station or radio network can't have an online form where people can document what rights they wish to grant to the station, and which they can't. Don't have time to fill out all those forms? Great, then hire a promotional firm to represent you and give them a percentage. They can do the job that the PRO is doing, and probably will do it better since they view you as a client not as a slave.

Finally, wouldn't it be nice if the artist actually made any money at all off their music? With a PRO the artist is incredibly lucky if they see anything at all. But if the artist makes their own deals with stations and networks, they keep the entire royalty.

I say ditch the whole system and start over. The technology we have nowadays will enable it.

August 23, 2007 8:04 PM  
Blogger Trash-Eighty said...

I've got two questions:
1) About what % of the music played on SomaFM is outside of RIAA labels (in other words, how much indie music)?
2) Assuming #1 is most/all, have you considered talking to eMusic or another similar entity to have them act as an intermeidiary to the indie artists for direct royalty negotiations, in the event that we can't get Congress to pass IREA?

August 24, 2007 9:59 AM  
Blogger Rusty Hodge said...

80-90% of the music we play is not on Major Labels. However, companies like eMusic are not authorized to license music for broadcast. They're just an end user of the licenses as well.

Ironically, Congress created SoundExchange to act as this intermediary. The problem was that SoundExchange's board of Directors has largely been filled with RIAA members or RIAA cronies.

What really should be done, is that SoundExchange's board should be replaced with independent directors. SoundExchange shouldn't operate just as another arm of the RIAA.

There are many people on SoundExchange's board who are independent, reasonable, and want to see net radio prosper and survive. But they're overshadowed by the members in the RIAA camp who only care about making as much money as they can right now.

August 24, 2007 10:17 AM  
Blogger MadJo said...

They say that this "offer" doesn't represent the artists that aren't signed to the SoundExchange system, but why then do they collect royalties in their names?
Or will SE use two different royalty schemes, one for artists signed to them (ie. paid SE to receive their royalties), and one for the artists that haven't been signed to SE?

And I agree with Rusty, the SE board should be completely independent. Or at least offer equal representation for all parties involved, so that no one party can overshadow the other.
That would also partly remove my objection to what I wrote above.

August 27, 2007 6:37 AM  
Blogger Rusty Hodge said...

Correct: there are 2 different royalty rates under this new offer. So if you play big label and SoundExchange member music, you pay at the low rate. If you pay indie, non-SX member music, you pay at the higher rate.

The RIAA reps on the SX board like it that way; as stations are fiscally punished by playing indie music, and are encouraged to play major label stuff.

August 27, 2007 10:45 AM  
Blogger MadJo said...

That is just scumbaggery. But then again could we expect differently from the RIAA?

Actually it's sad that that organisation can be so typecast. But as they say, power corrupts.

August 28, 2007 4:29 AM  
Anonymous Dixon said...

I'm confused. How did SoundExchange create a deal where SomaFM would have to pay more _NOT_ to play their songs? Also, it seams like the 80-90% of the artists that you play would want to get their music out there. How can SoundExchange/congress stop you from negotiating with them?

If all else fails, have you thought of incorporating outside of the US? One of the great things about the internet is that geography matters a lot less. I know you guys probably want to be a legitimate business but, as Ragnar Danneskjöld showed us, sometimes being a pirate is the best way to support law and order

September 2, 2007 11:59 AM  
Anonymous macs said...

Guys,

Please keep on fighting as hard as you've been doing!

We cannot allow this cr*p to take you out in the name of royalties. They want the money for their own and they'll pay nothing to the artists [my ex gf suffered from one of those "helpers"].

Please, for the sake of music and the good in general, for once, the US congress must do it right and stop this madness -well, it should have stopped the DMCA, and all this sh*t from the very beginning, but we're in the Illuminati land-.

Keep it cool, I'm confident we'll win. And, if not, I can offer my house in sunny Barcelona to transmit. Here in Europe we're still a little bit more civilized :D

September 9, 2007 9:06 AM  
Anonymous Ben said...

control..

have to say it.. its about restrictions and ultimatly control..

i hope SomaFM stands, good luck, get a grib on this matter and do what u can at your utt most best.. i dont want to listen to pop music

good luck! my thoughts are with u!

September 11, 2007 8:31 PM  

Post a Comment

Links to this post:

Create a Link

<< Home